Gold lost ground on Monday, moving closer to last week’s 5-1/2 year lows below $1,100 per ounce, with expectations for a near-term U.S. interest rate hike seen keeping momentum firmly with the bears.
While the market has been fixated on U.S. monetary policy, traders said further selling on Monday may have come on the back of a need to cover losses elsewhere as Chinese stock market indexes experienced their biggest one-day loss since 2007.
The Federal Reserve will hold a two-day meeting this week where policymakers are likely to send more signals pointing to a rate rise later in the year as the U.S. economy strengthens.
Spot gold was down 0.5 percent at $1,092.90 an ounce by 1158 GMT, after falling for a fifth straight week last week, the longest slide since late 2012.
U.S. gold for August delivery was up 0.6 percent at $1,092 an ounce.
Bullion lost more than 3 percent last week after a sudden, sharp rout across New York and Shanghai markets sparked further selling, sinking prices to $1,077 on Friday, their lowest since February 2010.
“Gold was doing OK for a while today but that didn’t last very long as sentiment is pretty much overwhelmingly one-sided,” SocGen analyst Robin Bhar said.
“It shouldn’t be a major surprise as we are very much stuck in a bear trend.”
The drop in gold came despite the dollar staying on the back foot, falling against a basket of currencies after a drop in U.S. stocks and bond yields.
U.S. speculators turned bearish on Comex gold for the first time since at least 2006 in the week ended July 21, U.S. government data showed on Friday.
Holdings of the world’s biggest gold-backed exchange-traded fund, the SPDR Gold Trust, also fell for a seventh day on Friday to 21.87 million ounces, the lowest since September 2008.
The U.S. rate outlook kept a tight grip on sentiment.
Based on forecasts mistakenly released on Friday, staff economists at the Federal Reserve expect a quarter-point rate increase this year. The Fed later said it was not the correct document and gave a new table showing a slightly lower forecast for gross domestic product and inflation in 2015.
At this week’s meeting, the Fed is unlikely to deviate from its recent policy statement or Fed Chair Janet Yellen’s congressional testimony this month, Mizuho Bank said.
“The most likely outcome is that Fed rhetoric will emphasise that the U.S. economy is on track for a rate hike(s) this year,” the bank said in a note.
In other precious metals, spot palladium fell 0.2 percent to $621.25 an ounce and platinum lost 0.7 percent to $975.74. Silver was down 0.5 percent at $14.56.